UK economic growth downgraded for final three months of 2017
The Office for National Statistics said gross domestic product grew by 0.4% in October to December.
The UK economy recorded slower-than-expected growth in the final three months of last year, posing fresh questions for the Bank of England as it eyes a further hike to interest rates.
The Office for National Statistics (ONS) said gross domestic product (GDP) grew by 0.4% in its second estimate for October to December 2017, revising down a first estimate of 0.5%.
The move caught economists off guard, with consensus figures predicting that the statistics agency would stick by its initial estimate made in January.
It means growth stuttered towards the end of 2017, failing to accelerate beyond the 0.4% recorded during the third quarter.
The ONS said the fourth-quarter shift was caused by “a small downward revision” to output from the production industries.
It also downgraded annual GDP growth to 1.7% in 2016/17, down from an initial reading of 1.8% and below the 1.9% expansion recorded across 2015/16.
Andy Haldane, the Bank’s chief economist, said on Wednesday that it may be forced to hike rates at a faster pace than first thought if inflation, global growth and the UK economy unexpectedly pick up speed.
Markets are predicting that the next rate rise beyond 0.5% could come as soon as May and are pencilling in at least three hikes within three years.
However, Samuel Tombs, Pantheon Macroeconomics chief UK economist, said: “This is not an economy that needs cooling with higher interest rates.
“The downward revision to Q4 GDP puts the UK back at the bottom of the G7 growth leader board for 2017.
“The economy still appears to have gathered a little momentum in the second half of last year.
“All told, then, the latest GDP data suggest that the economy remains in a fragile state and does not need to be cooled with another rate rise as soon as May.”
Sterling remained under pressure following the update, slipping 0.2% against the US dollar at 1.38. Versus the euro, the pound was down 0.2% at 1.29.
Britain’s powerhouse services sector, which counts for nearly 80% of economic growth, expanded by 0.6% during the three-month period thanks to a robust performance from business and financial services.
It helped to offset a dismal update from the construction industry, with output falling by 0.7% across the fourth quarter.
Household spending remained lacklustre, notching up a 0.3% expansion in the final three months of 2017.
It also struggled on an annual basis, growing at the lowest rate since 2012 at 1.8%.
On net trade, the deficit widened by £2.5 billion to £12.2 billion quarter on quarter following a hefty jump in the cost of imported fuels.
Despite the revision to GDP, John Hawksworth, PwC chief economist, said: “The big picture has not changed.
“The UK economy is still estimated to have slowed markedly in the first half of 2017 as higher inflation – linked primarily to the weaker pound after the Brexit vote – dampened real household spending power.”